World Economic Meltdown – Orissa must re-strategise its industrial policy to minimise After Effects

"The industrial policy of Orissa should be reviewed and renewed to tune itself to meet the challenges of globalization in the year 2009. The 18-year old adolescent economic reforms have impacted the industrial scenario of Orissa too. The high capital and technology intensive based private sector and MNCs have made the State owned PSUs uncompetitive in the state."

Sai Prasan : January 8, 2009

The global recession has hit hard all the economies. Not being an exception, India has also experienced the wrath of this recession that is considered worst than the depression of 1929. The slow-down in the industrial production with job-cuts has become order of the day in India too.

Even, Orissa’s finance minister confessed last month in public that the global meltdown is expected to choke the revenue stream of the state. The role of state is being extensively debated following the financial tsunami in US.

After the disintegration of Soviet Union, India had introduced the new economic policy in 1991 which aimed at minimising the state's participation in the production process. The economic reforms have witnessed the closure of a large number of State-owned PSUs paving the road of growth for the private sector including MNCs.

In this context, the industrial policy of Orissa should be reviewed and renewed to tune itself to meet the challenges of globalization in the year 2009. The 18-year old adolescent economic reforms have impacted the industrial scenario of Orissa too. The high capital and technology intensive based private sector and MNCs have made the State owned PSUs uncompetitive in the state.

According to the state economic survey for the year 2007-08, only 32 state owned companies are working out of a total number of 66. The total work force in the organized sector has come down from 7.98 lakhs in 2000 to 7.41 lakhs in 2006.

It is important to note here that the sub-prime crisis leading to the US financial turmoil has once again stressed the role of the State in the developmental process. The financial services companies like Lehman Brothers have gone bankrupt. And, the financial health of Merrill Lynch, AIG and automobile sector is also in doldrums. The unemployment rate is record high in USA. This economic situation has forced the US government to come out with a bail out package of $ 700 billion dollars (thirty three lakh crore rupees) to save some of these companies. And, the government is contemplating to come out with another round/s of bail out package/s.

This kind of economic downturn can be a good case for a state like Orissa to study. This is the right time for both people and government of Orissa to have an in-depth study whether the proposed 60 MoUs including POSCO, Vedanta and Tata Steel project in Kalinga Nagar will benefit the people of the state or they will be struggling for financial revival at the end of the day. The Profit and Loss (P&L) account of these projects should be evaluated.

The state officials conceded recently that the Rs 52,000 crore Posco project may likely to generate 4,000 to 5,000 jobs. Still, the officials claim that the allied industries of Posco – small and medium units – have the potential to generate lot more jobs.

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However, people of the state have already registered violent resistance to these projects as a large number of poor and marginal farmers and tribals have been displaced due to these industrial projects. The tribals of Kalinga Nagar also re-iterated their opposition to the Kalinga Nagar Tata Steel project early this month.

Here, Orissa can take a leaf from the Enron led DPC project in Maharashtra. The Rs 13,000 crore power project re-negotiated in 1995 faced several challenges. Out of this Rs 13,000 crore, around Rs 6,500 crore was the debt component of Indian financial institutions led by IDBI. The project was offered guarantee and counter-guarantee from Maharashtra government and Centre respectively which had created lot of problems both for governments in Maharashtra and the Centre as well.

It was evident that the state bureaucracy could not understand while signing the complex Power Purchase Agreement (PPA) in 1992. The dollar linkages with the total cost of the project and the fuel prices were the two main reasons for making the power project unviable. The project is now operational with some or other technical operational problems arising now and then.

Hence, it is a challenge for the government to safeguard its own industries from getting further affected due to the opening of the economy. The state government claims to sign 100 MoUs. But, it must be very careful while entering into any MoU with any MNC. The government machinery must take the advice of the professionals in accounting and in legal sector while giving a final shape to the project.

Moreover, the plan outlay of Orissa was only around Rs 7,500 crore for the current financial year. The state should ensure that MNCs like Posco should not dictate terms to the government. Rather, it should be the other way.

Strong public resistance has pushed most of the major projects into uncertainty. But, still, the doors are not closed. Orissa government may resolve the problems it is facing in the projects like Posco, Tata's Kalinga Nagar project and Vedanta by taking the affected people or communities into confidence and by sorting out the issues of people democratically in a transparent manner. It may go for referendum too, if necessary, to seek public opinion in the areas where projects are planned.

Only paying the compensation to the people against their land and offering them jobs may not be enough. Apart from this, the state government can explore other options too. The valuation of the land can be done. And, a portion of the value of the cost of the land can be converted into equity which can also make the land owners truly shareholders / stakeholders in the project. A Special Purpose Vehicle (SPV) can be created for this purpose. The government should also ensure a percent (may be 50%) of the jobs across the board for the locals of Orissa.

The globalization has hit the deprived section of society the most in terms of jobs. The state government should ensure that the SC & ST population consisting of 40% of the population get proper facilities for starting their venture. The government should direct even the private professional institutes to reserve seats for this category and financial arrangement should be made to take care of their fees.

Taking a cue from states like Gujarat, Maharashtra, Karnataka and Punjab, Orissa government, along with the private sector, should educate youth telling that the self-employment is the order of the day. They can also be job-providers by adopting SME model. The educated youth must be motivated to learn English and basics of IT which is a must for the development of the human resources in the state.

However, people oriented industrialization requires mass education. The underprivileged, Dalits, Tribals, minorities and women should be given proper education and training so that they can understand how to benefit from the industrial-developmental process by participating in it.

Apart from making the large scale industries happen in the state, Orissa government should also look at the avenues that can create ample opportunities for rural youth in particular. The state has a lot of scope to develop agro and forest based industries. The development of the cold storage and the soft skills like honey-harvesting can be encouraged as a SME projects.

Exploring opportunities across the long marine/ coast line, fisheries and other marine livelihood activities can be given a professional form and included in the SME sector.

As use of bicycle is still more popular in Orissa compared to any other mode of transport, cycle industry can also be set up. Similarly, other SME sectors like foot-ware (chappal) industry can be encouraged.

Gifted with the bounties of nature, tourism industry has the maximum growth potential. The only thing that is required in the sector is to make it upto the expectation of the domestic as well as overseas tourists and also to attract Bollywood and other film industries with properly developed and managed spots. This will not only help the industry grow but open up variety of opportunities for the youth of the state.

Similarly, like Andhra Pradesh government has developed Tirupathi Temple and Maharashtra government’s focus on Shiradi, Orissa government can look at Jagannath Temple on similar lines.

But, first of all, Orissa government should take proper steps to develop infrastructure – roads, ports and railways – to ensure a positive atmosphere for all kinds of development. It should also ask the Union finance ministry and Reserve Bank of India (RBI) to expand the banking network which is very important for the industrial development. People living in all the 314 blocks of the state should get information on the real time basis, on the lines of Gujarat, Maharashtra and southern states including Andhra Pradesh, on the developmental related issues.

The state industrial policy can emphasize on attracting capital from the people of Orissa origin who are living outside the state by logically motivating them to invest back at home in Small and Medium Enterprises (SMEs) for the purpose of employment generation.

The government can launch an awareness campaign targeting people living within and outside the country to invest in projects on the Public-Private Partnership (PPA) model for the development of their home-state. They can also be encouraged to invest as an independent entity. A co-ordinated determined action with a five-year time framework can change the face of Orissa.

(Author is a Senior Journalist and Financial Analyst based in Mumbai and, also, the initiator of political forum 'Janata Vikash Manch' in Orissa)